2 Financial management and control
6. Making decisions which are informed by rigorous
evaluation of the likely costs and benefits is central to strong
financial management. Otherwise value for money is at risk and
accountability for the results delivered is weakened. Without
clear project goals there is room for scope creep. Across a range
of BBC activities we have been concerned that there is a culture
which allows commitments to be entered in to and extended without
sufficient clarity, and robust challenge by BBC management, Governors
and now the BBC Trust.
7. We recently examined three BBC estates projects—Broadcasting House
in central London, Salford Quays in Greater Manchester and
Pacific Quay in Glasgow—on which the BBC is spending
in excess of £2 billion over 30 years. A series
of project management failings on phase 1 of the Broadcasting
House project cost the BBC over £100 million. For none
of the projects did the BBC set out at the outset a clear assessment
of the intended benefits from its investment in a way that would
allow achievements to be assessed. In the case of Pacific Quay,
the BBC only drew up a benefits realisation plan a year after
the project was completed.[5]
8. Whilst the Governors initially approved the three
projects, in 2007 the BBC Trust approved a revised business
case for Broadcasting House which did not set out measurable benefits,
and the business case for Salford which did not include a delivery
timetable or project milestones.[6]
In addition, scope changes added to the costs of Broadcasting House
(£28 million) and Pacific Quay (£60 million).[7]
9. The estates projects bore similarities to what
we saw in connection with the BBC's building project at White
City. The approved cost of the project was £210 million,
but basics such as the cost of fitting out buildings, the cost
of furniture and the cost of relocating staff were excluded. The
costs increased by £69 million (33%) as a result. The
need for significant increases in scope and costs a relatively
short time after approval raises questions about the quality of
the BBC's planning, particularly for long-term projects.[8]
10. Assessing full costs and benefits of proposed
spending, and evaluating options, is equally important to the
programme-making end of the BBC's business. In 2008-09 the BBC
spent £246 million securing the rights to, and a further
£111 million covering, sporting and music events, including
the Beijing Olympic and Paralympic Games, the Proms, and Glastonbury.
The coverage was delivered within 5% of the total budget for each
event.[9] The BBC did not,
however, formally evaluate different coverage options and draw
together all of the costs so that the full cost was clear at the
approval stage. Nor were the intended benefits from the coverage
of individual events identified at the approval stage, leaving
the BBC poorly placed to evaluate the cost effectiveness of its
coverage.[10]
11. Another example of the importance of getting
things right from the outset was the way management prepared the
case for the technology framework contract with Siemens in September
2004. When the BBC Governors considered the investment case the
BBC told the Governors that the contract would deliver guaranteed
annual savings of £35 million. However the savings were not
guaranteed. The BBC's estimate of the annual savings fell
to £27.5 million when the contract was signed one month
later, and to actual annual savings of £21.8 million
by April 2006.[11]
Although the BBC has now issued guidance on the requirements for
business cases, it has a long way to go to achieve a culture of
compliance.
12. In addition to weaknesses in the business case
for the contract with Siemens, there were implementation problems.
Whilst reported performance against key service targets was high,
most of the early technology projects commissioned under the contract
experienced delays, with the result that there were cost overruns
and some benefits from the projects were available later than
planned. The BBC also lacked sufficient control over the services
procured by divisions through the contract, as many areas of the
BBC were still buying technology services and commodities from
suppliers other than Siemens, undermining the delivery of savings
from the contract.[12]
13. The BBC has not always protected its commercial
position through its contracts. For the White City 2 building,
the financing mechanism meant the BBC was unable to calculate
the return to shareholders although the contracts included a provision
to cap the return at 30%, which was much higher than typical rates
of return for deals of this type.[13]
For the Siemens deal, the contract did not provide for the BBC
to share profits if Siemens return exceeded a specified level.[14]
14. The BBC has been securing savings through its
efficiency programmes. The BBC's radio stations achieved
efficiency savings of £11.7 million in the period from
April 2005 to March 2008.[15]
The BBC could go further to identify the scope for more efficiency
savings, however, as there are wide ranges of costs for similar
programmes. For example, the average cost for an hour of comparable
music programmes on Radio 2, at almost £1,500, was almost
50% higher than on Radio 1. In addition, the costs of the
BBC's breakfast and drive time shows did not compare favourably
with those of its commercial rivals, largely due to the costs
of presenters. We were not persuaded by the BBC's argument
that that the market, and not its own actions and behaviours,
was driving the pay of the BBC's top presenters.[16]
15. The BBC, by March 2008, also secured savings
of £157 million from its strategic contracts[17],
exceeding the target of £135 million when the contracts
were first let. In part this was due to previously overlooked
savings of almost £39 million from the Siemens contract.[18]
The BBC has been successful in reducing the cost of other goods
and services. The BBC achieved procurement savings of £37
million in the two years to March 2007, and established a
centralised procurement function with qualified staff to strengthen
its procurement procedures and to control its spending more effectively
than in the past.[19]
5 C&AG's Report, The BBC's management
of three major estate projects, February 2010, paras 1
and 9 Back
6
Qq 149 and 151 Back
7
C&AG's Report, The BBC's management of three major
estates projects, February 2010, Figures 6 and 7 Back
8
Committee of Public Accounts, Twentyfourth Report of Session 200506,
The BBC's White City 2 development, HC 652, para 2 Back
9
C&AG's Report, The BBC's management of its coverage
major sporting and music events, December 2009, para. 16 and
Box 2 Back
10
Qq 11, 17, 34, and 35 Back
11
Committee of Public Accounts' Report of Session 200607,
BBC outsourcing: the contract between the BBC and Siemens Business Service,
HC 118, para 3 Back
12
Committee of Public Accounts' Thirty-fifth Report, paras
7 and 13 Back
13
Committee of Public Accounts, Twentyfourth Report of
Session 200506, The BBC's White City 2 development,
HC 652, para 7 Back
14
Committee of Public Accounts, Thirtyfifth Report of Session 200607,
BBC Outsourcing: the contract between the BBC and Siemens
Business Service, HC 118, para 8 Back
15
C&AG's Report, The efficiency of radio production
efficiency, February 2009, paras 56 and 57 Back
16
Committee of Public Accounts, Twentyfifth Report of
Session 200809, The efficiency of radio production
at the BBC, HC 285, paras 9, 12, and 16 and Figures 2
and 3 Back
17
The BBC defines a strategic contract as those which have an annual
value of at least £2 million, a term of at least five
years, and which make a key contribution to its business Back
18
C&AG's Report, The BBC's management of strategic contracts
with the private sector, March 2009, para 31 Back
19
Committee of Public Accounts, Nineteenth Report of Session
200708, BBC Procurement, HC 221, paras 2
and 8 Back
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